The upcoming data is especially critical because investors and the Federal Reserve have been navigating with little certainty since a 43-day federal government shutdown postponed key reports.
The U.S. jobs report for November is due on Tuesday, while the monthly consumer price index, which is closely watched for inflation trends, is out on Thursday.
“There has been a lack of clarity for investors,” said Jim Baird, chief investment officer with Plante Moran Financial Advisors. “Strong corporate earnings certainly helped to support the markets. The Fed and anticipated rate cuts helped to provide a little bit of a boost. But now it’s time to turn our attention back to the underlying economy and what path we’re on.” A divided Fed cut interest rates by a quarter percentage point on Wednesday for a third-straight meeting as it seeks to shore up a weakening labor market. But the central bank signaled borrowing costs are unlikely to drop further in the near term as it awaits more economic clarity.
“Because of the government shutdown and the catch-up schedule, we have essentially three months of both labor and inflation data coming out between the December and January Fed meetings,” said David Seif, chief economist for developed markets at Nomura.
U.S. payrolls are expected to have climbed by a tepid 35,000 in November, according to a Reuters poll. Fed Chair Jerome Powell on Wednesday said while payrolls have been averaging an increase of 40,000 per month since April, the Fed thinks those numbers are overstated and could instead be an average loss of 20,000 per month. “If we start getting negative prints around jobs, you can’t avoid the recession discussion,” said Marvin Loh, senior global macro strategist at State Street. The monthly CPI data comes as inflation has continued to run above the Fed’s target, which could complicate any further Fed easing if inflation does not cool. Three policymakers dissented from the decision to lower rates, including two who argued rates should have been left unchanged.
“We continue to expect further cuts in January and April, but if the labor market stabilizes, then future cuts may not come until inflation decelerates,” Morgan Stanley economists said in a note on Thursday. A report on retail sales is among the other releases next week that will help provide more insight into economic growth. Micron Technology’s quarterly report on Wednesday also could draw added scrutiny following the AI turbulence this week. The S&P 500 is up 16% so far in 2025, pushing its gain during the bull market that began in October 2022 to 90%. December is traditionally a positive month for stocks.
However, investors could seek to lock in year-to-date profits, bringing selling pressure. The approaching holidays also stand to reduce trading volumes, which can lead to exaggerated asset-price moves.
“For the most part, it’s been a very, very good year for risk assets,” Loh said. “If you get some shaky numbers or you don’t get a resounding reason to add risk, it could add volatility in the market just because of the thinner markets.”
